Global Survey of Business Executives

Transcription

1 Global Survey of Business Executives January 2006 Economic confidence is up, but executives say they face a host of worries about society s expectations of their companies, which must and can do better. The confidence of executives in the global economy has risen for the first time in two years, the latest McKinsey Quarterly global survey shows. 1 In addition, although the economies of China and India are booming, executives in those countries display markedly different levels of confidence. The survey also shows that executives around the world overwhelmingly embrace the idea that the role of corporations in society goes far beyond simply meeting obligations to shareholders. But executives also say that, for most companies, sociopolitical issues such as environmental concerns and the effects of offshoring present real risks. Indeed, finding ways to control them is so important, the executives say, that the effective management of sociopolitical concerns must start with the CEO. Executives are far less certain, however, that corporations adequately anticipate which sociopolitical concerns will affect them. These executives also believe that the tactics lobbying and public relations, for example companies now use to meet such concerns are not the most effective ones. In addition, they think that the public will expect corporations to take on a significant role in handling the new pressures. Detailed responses to the survey appear on the following pages. 1 The McKinsey Quarterly conducted the survey in December 2005 and received responses from 4,238 executives more than a quarter of them CEOs or other C-level executives in 116 countries. Source: Nov 2004 McKinsey Quarterly survey of 16,476 global business executives

2 2 The McKinsey Global Confidence Index For the first time in two years, executive confidence in the global economy has risen (Exhibit 1), propelled by a significant rebound, over the past three months, in the confidence of US executives in their country s economy. US executives shook off their earlier pessimism as US fuel prices declined, consumers became more optimistic, and the dollar s value rose. Thus US executives are again among the most confident in their home economy (Exhibit 2). Their expectations for the six months ahead are on a par with those of their counterparts elsewhere. Executives around the world are more confident than not, though global confidence remains markedly lower than it was when we first measured it, in January Executives in China and India two booming economies report very different levels of confidence. India s executives are far more confident than their peers in China, by 18 percentage points overall. The biggest variation occurs in the respondents view of current conditions in their own industries. Although executives in China were fairly hopeful about those conditions six months ago, confidence has fallen by nine percentage points. Chinese executives are now neutral about the state of their industries. The hiring plans of China s executives tend toward the extremes. On the positive side, 62 percent say their companies plan to hire in the next six months, versus 39 percent globally. Further, Chinese executives who plan to increase the workforce expect to add jobs far more aggressively than do executives in other regions. At the opposite extreme, though only 8 percent of the Chinese executives half the global percentage expect the workforce of their companies to shrink, those who do anticipate layoffs are planning more dramatic ones than are other executives who expect job cuts (Exhibit 3). Across Asia, executives are more confident about the current economic conditions of their countries than about those of their own industries (Exhibit 4). Many industries in the region are subject, in varying degrees, to uncertain tariffs, and growth is often constrained by resource limitations, talent shortages, and government regulations. 2 Even so, executives across Asia, like those in the rest of the world, remain almost as hopeful about future industry conditions as they were a year ago. 2 See, for example, Diana Farrell and Andrew J. Grant, China s looming talent shortage, The McKinsey Quarterly, 2005 Number 4, pp ( Diana Farrell and Susan Lund, Reforming India s financial system, The McKinsey Quarterly, 2005 special edition: Fulfilling India s promise, pp ( Steven D. Carden, Lenny T. Mendonca, and Tim Shavers, What executives think about growth and risk, The McKinsey Quarterly, 2005 Number 2, pp ( Diana Farrell and Ezra Greenberg, The economic impact of an aging Japan, The McKinsey Quarterly, Web exclusive, May 2005 ( and Ivo J. H. Bozon, Subbu Narayanswamy, and Vipul Tuli, Securing Asia s energy future, The McKinsey Quarterly, 2005 Number 2, pp (

3 3 The McKinsey Global Confidence Index

4 4 The McKinsey Global Confidence Index

5 5 Accepting social responsibility Business executives across the world overwhelmingly believe that corporations should balance their obligation to shareholders with explicit contributions to the broader public good. Yet most executives view their engagement with the corporate social contract as a risk, not an opportunity, and frankly admit that they are ineffective at managing this wider social and political issue. Our findings highlight some of the key issues that businesspeople expect stakeholders, social and consumer activists, and the media to raise during the next five years. The responses provide striking evidence of the way environmental concerns, doubts about data privacy, the controversy around offshoring, and other sociopolitical matters have firmly inserted themselves into the day-to-day agenda of the executive suite. Unquestionably, the global business community has embraced the idea that it plays a wider role in society. More than four out of five respondents agree that generating high returns for investors should be accompanied by broader contributions to the public good for example, providing good jobs, making philanthropic donations, and going beyond legal requirements to minimize pollution and other negative effects of business. Only one in six agrees with the thesis, famously advanced by Nobel laureate Milton Friedman, that high returns should be a corporation s sole focus (Exhibit 5). 3 These responses, from a group of largely privatesector executives, show strong global support for a wider social role. The most enthusiastic proponents are executives in India: 90 percent of them endorse the public good dimension. Executives based in China are the most lukewarm, with 25 percent saying that investor returns should be the sole focus of corporate activity. 3 There is only one responsibility of business, namely to use its resources and engage in activities designed to increase its profits. This quotation originally appeared in The social responsibility of business is to increase its profits, New York Times Magazine, September 13, 1970.

6 6 Admiration is hard to win Respondents are mostly upbeat about the broad impact of business on society: some 68 percent say they are either generally or somewhat positive about the contribution that large corporations make to the public good. The proportion jumps to 76 percent when executives are asked if their own companies make a positive contribution. Yet many respondents stress the risks to the reputation of companies, as well as the potential for damaging their shareholder value, when they are expected to address social and political concerns. Across most sectors notably consumer-facing ones nearly three in ten respondents say that the media or interest groups have criticized corporations in their industries for failing to meet social responsibilities generally expected of them but not required by law. Executives believe that the solution lies in their own hands. Asked how adequately the respondents companies anticipate social pressure including criticism of their activities 46 percent say that they have substantial room for improvement, and a further 24 percent admit to seeing some room. Only 3 percent report that their companies are doing a good job. One explanation for these shortcomings appears to be that companies are taking the wrong approach. The respondents were asked which tactics their companies actually rely on most frequently and which tactics they themselves consider most effective whether or not the companies actually use these effective tactics. Almost half of the respondents say that their companies are currently lobbying regulators and governments and using the media and public relations as part of a strategy to manage social and political challenges. But when executives are asked what tactics they consider most effective in managing such challenges, only 35 percent propose using the media and PR. A mere one-quarter recommend lobbying. A significantly higher proportion of the executives hold that the most effective tactics are policies on ethics and other corporate-responsibility issues, stakeholder engagement, and increased transparency about the risks of products or processes (Exhibit 6).

7 7 Doing good to look good The choice of tactics is also an issue in assigning leadership. Asked who actually takes the lead in trying to manage the sociopolitical agenda of their companies, more than half of our respondents point to the chair or chief executive. A further 14 percent report that the public- or corporate-affairs department typically holds the reins. When asked who should take the lead, however, almost three-quarters opt for the chair-ceo and a mere 4 percent for the public- or corporateaffairs department (Exhibit 7). Judging by our survey, executives are hard-nosed about why companies are engaging in this new agenda. Only 8 percent think that large corporations champion social or environmental causes out of genuine concern. Almost nine in ten agree that they are motivated by public relations or profitability, or by both concern and and business benefits in equal measure.

8 8 Threats and opportunities Looking ahead, executives expect that a wide range of concerns will dominate public and political debates. Asked which three issues will have the most impact, for better or worse, on the shareholder value of companies in their industries during the next five years, 41 percent choose job loss and offshoring. Also at the top of many minds are corporate political influence and involvement; environmental issues, including climate change; pension and retirement benefits; and privacy and data security (Exhibit 8). Surprisingly, perhaps, human-rights standards a cause long championed by nongovernmental organizations barely register as a concern. Among notable regional and industry differences, 47 percent of the respondents in North America mention health care and other employee benefits, while 39 percent of banking and finance executives point to privacy and data security. Although executives generally see a mix of risks and opportunities across the sociopolitical landscape, a majority tend to view most of the main issues as potential threats (Exhibit 9). Some see opportunities, however. In all, there were 15 categories of issues. On balance, respondents express more optimism than pessimism in 5 of them: demand for healthier or safer products, for more ethically produced products, and for investment in poor countries, as well as human-rights standards and job loss and offshoring.

9 9 Threats and opportunities

10 10 Health care leads the way With executives generally positive about the wider social role business plays, which specific industries make the greatest overall contribution to the public good? Health care, mentioned by 49 percent of the respondents, tops all other sectors by a notable margin (Exhibit 10). Despite the high-profile attacks of some interest groups, the pharmaceutical sector (buoyed particularly by North American support) also does well. More than a quarter of the respondents cite either agriculture, especially valued in China and India, though less so in Europe, or telecommunications, notably popular in developing countries, including China. Such optimism is encouraging, since there is no sign that the new pressures on business will go away. According to the survey, 20 percent of the respondents believe that the public will expect companies to take on most of the added responsibility for handling social and political issues, while an additional 59 percent think the burden will fall equally on governments and companies. Q Copyright 2006 McKinsey & Company. All rights reserved.